The CBR “thawed” a bit on the rate hike, monitors the risks associated with the global crisis

(Added comments by the head of the CBR, new edition of the text and title)

MOSCOW, March 17 (Reuters) – Russia’s Central Bank decided to keep its key rate at 7.50%, where it has been since September 2022, as the inflationary risk profile has not changed much since the previous meeting and the growing likelihood of a global scenario crisis requires keeping one’s finger on the pulse for the time being.

The communiqué remained unchanged as a “hawkish” signal for further action: “If the pro-inflationary risk increases, the Bank of Russia will assess the possibility of raising the main interest rate at the next meetings.”

The head of the CBR, Elvira Nabiullina, said after the meeting that the risks are still moving towards pro-inflationary ones.

“That’s why we still believe the likelihood of a rate hike this year outweighs the likelihood of a cut,” she said.

The head of the NBP clearly indicated that the range of the average key rate for this year remains at the level of 7.0-9.0% per annum, and the rate may return to the neutral range in 2025.

At the same time, the CBR intends to update the assessment of the neutral rate in July as part of the preparation of the main directions of monetary policy.

“We can already say that three factors will significantly influence this. First, fiscal policy – in particular the level of structural budget deficit. Second, the risk premium for our economy. And third, the level of foreign risk-free interest rates. These factors are likely to increase our estimate of the neutral rate. However, their concrete contribution will be assessed by the July meeting,” Nabiullina said.

Analysts considered the possibility of increasing the assessment of the neutral real interest rate from the current 1-2% as the regulator’s main message to investors.

“I believe the Central Bank can bring the neutral rate back to 2-3%… When inflation is above target due to stable factors (as is the case today), the Central Bank is forced to keep the rate above the target at the neutral level. And its growth alone, with other parameters unchanged, may mean a higher level of interest rates on deposits, loans and bonds,” wrote Dmitry Polevoy from LokoInvest.

“Therefore, fiscal risks have driven OFZ yields to increase significantly, and their new equilibrium level for fixed income may be higher than before 2022.” – added.


Nabiullina this time spoke less about the increase than in February, noting that two options were considered at the meeting: retention and a possible increase, without details on the steps.

“We did not discuss the step of increasing the rate in detail, we discussed the possibility of increasing it,” said the head of the CBR.

Analysts agree that, in general, the CBR’s rhetoric remains quite tough and the rate is expected to remain unchanged at the next meeting on April 28.

“I think they are holding back from toning down their rhetoric because they want to lower expectations even further,” said Sofya Donets of Renaissance Capital.

“Current inflation, of course, gives cause for relaxation,” she added.

Despite the easing of the inflation background, the increase in external risks prevented the central bank from softening its rhetoric, and most of Nabiullina’s press conference was devoted to discussing the banking crisis in the United States.

“We’re starting from the fact that it won’t lead to some sort of global crisis,” Nabiullina said.

“It was definitely not part of the base script. A large-scale global financial crisis is not part of the baseline scenario we are emerging from. We note that yes, the risk of such a scenario has slightly increased, and if it materializes, it will be a pro-inflation risk,” said Alexei Zabotkin, deputy governor of the Central Bank of Russia.

World Crisis Scenario

submitted by CBR last year

suggests a tightening of monetary policy.

For Russia, the global recession will mean a drop in demand for exports and new pro-inflationary pressures.

“There is no direct impact on the Russian financial system, but this factor in itself increases uncertainty about the future trajectory of the global economy. The current situation exacerbates the problem of balancing monetary policy goals and threats to the financial stability of Western central banks. On the one hand, we see the vulnerability of the financial sector to interest rate and other risks, on the other hand, the current inflationary pressure remains elevated,” said the head of the R&D Centre.

The regulator comes from the fact that Western central banks have developed tools to fight banking crises and will be able to stop threats to the global economy.

“By the end of the year, given the stability of current trends: subdued private consumption, stabilization of government spending and a decline in the inflation background, we stand by our forecast of interest rate change in the range of 6.5-7%,” BCS analysts wrote.

We still see room for a key rate cut in the second half of the year as inflationary risk assessments decline and inflation expectations adjust to low annual inflation (less than 4% in the coming months), Renaissance Capital analysts write.

According to their estimates, by the end of 2023 this rate may be lowered to 6.5%, although the consensus still predicts that it will be at the level of 7.5%. (Elena Fabrichnaya. Editor Dmitry Antonov)


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